Cat’s two big worries: Trigger-happy central bankers and tensions over currencies and trade provoked by the divergence in the pace of growth between emerging markets and developed countries.

On the first: “We are concerned that central banks in the developed economies may begin tightening economic policies too quickly. Modest interest rate increases in both Australia and Canada, two of the stronger developed economies, quickly caused some weakness in construction indicators. The larger, more fragile economies would likely react even more unfavorably to significant economic tightening… The European Central Bank has voiced concern about inflation, but the European debt crisis may limit its ability to tighten policy.”

On the second: “World economic recoveries have diverged, disrupting the consensus on economic policies that developed early in the financial crisis. Policy differences are creating trade and currency tensions and increase the potential for trade frictions.”
Some other highlights:

Industrial production: Output “is recovering throughout the world but has not returned to pre-recession levels in most countries. We believe that incomplete recoveries in industrial production, coupled with high levels of unemployment in many countries, indicate that the world economy has capacity for above average growth. We anticipate that economic growth in the developing economies will moderate from 7% in 2010 to about 6.5% in 2011.”...MORE